While we may be hours away from a partial (and certainly a stopgap) agreement in the talks among the Greek government, the troika and private sector creditors, it is doubtful that a deal will emerge in a fully constructed fashion that will survive its application in the real economy.

It is likely that the only common view amongst participants in the various talks is a desire to try to avoid a disorderly default. Beyond that there is a severe disconnect fostered by parallel realities that seem unable to intersect. Accordingly, a deal that can hold up both in the streets of Greece and in the markets is both illusive and unlikely. Here’s why I think so.

Recently I have had opportunities to meet with and question senior members of the economics establishment within the German government and the broader German intelligentsia. Our meetings were held under Chatham House rules so I can’t name names, but – after several meetings with policy delegations from Germany over the past 60 days – I am prepared to sum up what appears to be the pretty-universally-held German policy position as follows (my apologies if the below evidences some degree of frustration – but these encounters leave me quite chagrined): Den Rest des Beitrags lesen »

FRANKFURT—Industrial production in Germany fell sharply in December in adjusted terms as all categories recorded a fall, data from the country’s economics ministry showed Tuesday, but the ministry sees a recovery in the near term.

Industrial production in Europe’s largest economy fell by 2.9% in monthly terms in December, following November’s flat reading. November production was originally reported to have dropped 0.6%. Experts had forecast a 0.2% monthly gain in December.

The biggest monthly drop was construction which fell by 6.4% in December after growing by 3.3% in November. Manufacturing production fell by 2.7% in December after a 0.3% drop in November. In quarterly adjusted terms, industrial output fell by 1.9% in the fourth quarter, the ministry reported.

Even though manufacturing output fell in the fourth quarter, survey indicators point to the pace of output picking up early in 2012. The ministry wrote in a statement that the stabilization of new orders as well as brightening business climate indicators are the “first signs” of overcoming the weak phase in industrial production.

Petroplus, the largest independent oil refiner in Europe, said it was filing for insolvency after lenders demanded repayment on $1.75 billion of outstanding debt.

LONDON — European governments are not the only ones struggling with debt. So are some of the region’s companies.

As profits and sales slip, some European businesses are scrambling to pay their bills. Because banks are reluctant to lend, the fear is that companies will not be able to borrow the cash they need and will be forced to take drastic action, further weighing on the economy.

“There’s a lack of business confidence across Europe” said Jonathan Loynes, chief European economist in London at the research organization Capital Economics. “Lending to the private sector is deteriorating, and there’s enormous stress on the European economy.” Den Rest des Beitrags lesen »

Author: Tim Duy · February 6th, 2012 · RGE EconoMonitor
In the fall of 2008, US authorities conducted a financial market experiment. They allowed a large and heavily interconnected firm, Lehman Brothers, to file for bankruptcy, apparently under the belief that the consequences should be limited as everyone knew this was coming. I think that, in retrospect, US policymakers wished they had pursued an alternative path. The experiment was not exactly successful. Now it seems that European policymakers are willing to risk yet another such experiment. To be sure, they could still pull the rabbit out of the hat, but it is starting to look like the Troika and Greece have what they call in divorce court “irreconcilable differences.” Via the Financial Times:

Lucas Papademos, the Greek premier, failed to make party leaders accept harsh terms in return for a second €130bn bail-out, pushing Athens closer to a disorderly default as early as next month……After five hours of discussions, the three leaders of Greece’s national unity government had not accepted demands by international lenders for immediate deep spending cuts and labour market reforms as part of a new medium-term package.

European Union leaders had the umpteenth euro crisis summit at the end of January. Indeed the EU Council meets so often that the descriptions of these gatherings should be changed from “yet another summit” to “back in session.” The slide to near-permanent policymaking has occurred as the EU Council begins to resemble a sitting parliament. But on January 30, 2011 the leaders made tangible progress on several fronts, though not necessarily on the stated goal of the summit—job creation and growth. Most importantly, at German insistence, they cleared the political and institutional way for an increase in European bailout funds. Den Rest des Beitrags lesen »